Crop estimates confirmed at harvest

Each May, nearly every link in the global food chain eagerly waits for USDA’s first “official” supply/demand balance sheet forecasts for the U.S. and the world as a whole. The first balance sheets in the May WASDE (World Agricultural Supply/Demand Estimates) get the most focus because these are the first ones that incorporate survey-based March Prospective Plantings for acreage, and also, the size of the Southern Hemisphere crops are largely known by May.

That leads any reasonable stakeholder in the outlook for major crops in any given year to ask, “So how close do the May WASDE estimates come in pre-season estimates of the likely supply/demand balance six months later, after the new crop harvests are completed? To answer that question, I looked back at the record of the past six years for world wheat, coarse grains, corn, soybeans, rice and cotton. History shows that over just about any six-year period, weather-wise the world will experience one unusually good year; one unusually poor year, and about four years that fall somewhere in between.

What I found was that May WASDE estimates (where USDA assumes “normal weather and normal yields” for every major producing country of all major crops, are remarkably close when you average all six years. Here are my quick observations on the data contained in the accompanying table, crop by crop:

World Wheat: There were three years when December production exceeded the initial estimate in May; three when it fell short. But the average change in the “up” years was only 3.23 percent while the average change in the “down” years was 9.55 percent. So, even though the variance in million metric tonnes was fairly close (about 21 mmt), the impact on global prices was significantly greater in the down years than in the bumper crop years.

World Coarse Grains: December production exceeded the initial estimate in May in four of the past six years; but fell short in two. The average “miss” in the up years was just 1.6 percent while the average miss in the years when production fell short was 4.27 percent.

World Corn: Interestingly, even though corn accounts for about three quarters of global coarse grain production in any given year, the ratio of years when May estimates were too high versus too low is tied at three apiece. So, there were obviously some years when sorghum, barley and oats were the “swing factors” between May and December global production estimates, not corn. In any event, the misses were small, averaging less than 1 percent in the “up” years; 3.97 percent in the “down” years.

World Soybeans: There were three years when December production exceeded the initial estimate in May; three when it fell short. But the average change in the “up” years was only 3.3 percent while the average change in the “down” years was even less at 1.78 percent.

World Rice: There were two years when December production exceeded the initial estimate in May; four when it fell short. And again, the average “miss” by USDA was remarkably small—less than 1 percent in the “up” years; and just 1.5 percent off in the “down” years.

World Cotton: As a special note separate from grains, there were three years when December production exceeded the initial estimate in May; three when it fell short. But the average change in the “up” years was only 1.34 percent while the average change in the “down” years was 3.33 percent.